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The Aim 100 2015: 10-1

In the tenth and final 10-company segment of our analysis of Aim's top 100 companies, we give our verdict on EMIS, VinaCapital, Hutchison China Meditech, James Halstead, Plus 500, PureCircle, Optimal Payments, Abcam, GW Pharmaceuticals and Asos
The Aim 100 2015: 10-1

10. EMIS

Tight budgets and soaring patient numbers are forcing healthcare providers to lower costs, boost efficiency and improve quality of care. Over 10,000 GPs, pharmacies and clinics use software from EMIS (EMIS) to quickly and safely transmit patient records and prescriptions; that helped the ‘connected healthcare’ group grow its adjusted operating profit by a quarter in 2014.

EMIS commands a 53 per cent share of the UK primary care market: its latest information sharing system, EMIS Web, is used in over 4,200 GB practices. It’s also gaining traction with community, children and mental health organisations, winning 11 contracts worth over £14m in total last year. And management expects new communication products and software targeting Boots and other ‘supermarket’-style pharmacies to drive growth in the community pharmacy segment. Meanwhile, the budding secondary and specialist care division inked a deal with NHS Wales – worth £7.6m in the first seven years – to improve unscheduled care across the country. It also expanded its services by acquiring clinical messaging group Indigo 4 and diabetic eye-screening specialist Medical Imaging for about £10m in total.

EMIS is growing quickly and offers lucrative exposure to integrated healthcare. At 905p, its shares trade at 20 times N+1 Singer’s full-year forecast earnings and come with a small yield. We think that’s a fair rating. Hold. TM



The board of VinaCapital (VOF) have what they have called a “persistent problem”: the discount of its share price to its NAV, which sits at a long-term average of 23 per cent. This is despite share buybacks worth $30.6m (£20.4m) over the latter half of 2014.

Management is also working harder to explain the ‘story’ of this fund – which invests primarily in stocks, real estate and private equity in Vietnam and surrounding countries – to investors. The opportunity fund is one of three closed-end strategies the company has listed on Aim. The manager is also looking to reduce its holdings in direct real estate, where investors are most uncertain about asset values, and is even considering the “potentially radical” solution of restructuring the company to entice shareholders.

On the performance side, the fund’s NAV was up 0.9 per cent in the six months to 31 December, against a decline of 6 per cent, in US dollar terms, of the wider index. The company reported improved conditions at the start of this year, with falling inflation and fractionally higher than expected growth meaning Vietnam was outperforming other emerging markets. Despite the discount, buying this stock is a big bet on an emerging markets recovery that is yet difficult to foresee. Hold. IS



It’s no secret that big pharma has eyed China as the next frontier in drug sales for some time. But there are few companies with as big a foothold in this Asian market as Aim-traded Hutchison China MediTech (HCM). A ridiculous forward PE ratio of 110 times earnings makes this a risky punt, but the share price is trading at a five-year high. Those who invested only a year ago have already doubled their money.

Pre-tax profits took a hit last year, but only because the group generated so much cash it decided to significantly ramp up its spending on clinical trials. HCM has 16 clinical studies running in parallel, 10 of which have been awarded ‘breakthrough status’ by the US Food and Drug Administration (FDA). So they can reach patients who need them more quickly, these treatments won’t be subject to the usual rigorous regulatory approach to drug development. The amount of money spent on clinical trials rose to $45m last year, compared with $30m in 2013. That led to an operating loss of $9.7m for the research and development division and a 35 per cent drop in pre-tax profit. But revenue more than doubled – not including another $456m in joint-venture sales. Hold. HR



Specialising in commercial floor coverings, James Halstead (JHD) has continued to deliver a workmanlike performance, and has seen growth in all its operating areas including mainland Europe and Australasia. In the UK, where the group generates around a third of turnover, sales were up 9 per cent at the half-year stage. Margins are also ahead from a year earlier. The weakness of the euro has dented sterling-denominated profits, although Europe-sourced raw materials have correspondingly come down in price.

The group is also busy improving and expanding its product range, notably in higher-margin products such as sheet flooring products with carpet and wood-like effects. As well as supplying flooring for new premises, it has been busy catering for refurbishment projects, and has been instrumental in developing a recycling scheme, reusing waste destined for landfill. Costs have risen by more than inflation, although much of this reflects investment in new markets, notably the Middle East, India and Canada. Cash generation is impressive, and shareholders have been rewarded with nearly 40 years of dividend increases. Analysts have hinted that there might be a special dividend payment on the way, and while the shares are trading at over 20 times forecast earnings, they are worth holding for the income. Hold. JC


6. PLUS 500

Atlético Madrid, the current champion of the Spanish football league, has a new sponsor. Not a phone company, not an insurance group, but Plus 500 (PLUS), an Israeli broker of contracts for difference (CDFs).

If that financial product is unfamiliar to the average fan, that is the point. The broker is trying to raise awareness through brand awareness and digital marketing of its multi-platform software, which allows the user to take long or short positions via CFDs on more than 2,000 shares, indices, currencies, and other securities. It is now available in 31 languages in more than 50 countries.

Plus 500 added more than 32,000 customers in the first quarter, a 63 per cent year-on-year uplift. Questions have been raised about how loyal these new customers will prove, and the increasing amount the company is spending to acquire them. But at the same time, the average revenue generated per user is outstripping that cost, and by an increasing margin. There is no clear reason to doubt the profitability of a business that near doubled its revenue last year, and continues to grow. After a rocky 2014, the shares are up more than a fifth since our buy tip but, trading at 10 times forward earnings, there is still scope for further upside. Buy. IS



The latest news in the world of healthy eating is that fat is good, sugar is bad. The biggest culprits here are fizzy sodas and other soft drinks, which health experts now blame for the obesity epidemic spreading across the globe. Enter PureCircle (PURE), a company that develops calorie-free, all natural sweeteners, blends and flavours derived from the stevia plant.

Stevia has taken the world of sugar-free food by storm and is now readily available from supermarkets. It’s also being increasingly adopted by global beverage makers. This is the market to which PureCircle supplies its products. Some of the world’s biggest beverage names, such as Coca-Cola and Pepsi, are rolling out a number of stevia-containing products from PureCircle. More interestingly, stevia is being widely adopted by food producers, for things such as ketchup and yoghurt.

That bodes well for PureCircle’s future. Already, profits and sales are rising in the double digits. However, high demand for stevia has given rise to a leaf shortage, and that is pushing raw material prices up. As a consequence, PureCircle’s costs will rise. What’s more, management recently warned that sales growth was likely to be ‘lumpy’ until market consumption smoothes out, making it difficult to provide earnings guidance. Despite the huge sales potential, the short-term uncertainty means the shares are a sell. JB



Optimal Payments (OPAY) came to market in 2011 through a merger with Neovia, which had initially floated on Aim in 2004. The combined group has two main products – an online payment platform, Netbanx, and Neteller, an ‘ewallet’ for internet gamblers. The group has enjoyed impressive growth since the merger, with revenue last year up by almost half to $365m, while pre-tax profit rose 80 per cent.

The payment processor hopes to drive growth through its £846m acquisition of major rival, Skrill, which chief executive Joel Leonoff described as “like a twin sister” to Neteller. Mr Leonoff hopes the deal will improve Optimal’s pricing power, reduce competition and help it more precisely target its technology and marketing investments. Mr Leonoff said the group can initially make $40m in savings by targeting “low hanging fruit”. The group raised £451m through a rights issue last week and will pay the balance with cash and debt.

Broker Numis Securities increased its target price to 900p from 700p, after taking into account the Skrill acquisition. The group is likely to move to the main market later this year, due to the sheer size of the deal – Numis expects cash profits to almost double to $123.6m this year. We upgrade to buy. EP



Management changes always have the potential to rock the boat. But, coupled with some pretty fierce currency headwinds, Abcam’s (ABC) share price was left fighting to maintain its momentum last year. That said, the share price has staged an impressive recovery since last October, leaving the shares trading 40 per cent higher year on year.

A bullish trading update in January let investors know the medical proteins supplier would post strong first-half results. The group switched its chief executive towards the end of last year, replacing Jonathan Milner with Alan Hirzel. Now, the group is pouring money into product development, revamping the website and pursuing acquisitions. A ramp-up in sales has become a top priority. Abcam wants sales of the antibody range up by 15-20 per cent this year, and the non-antibody range by 25-30 per cent. But in the first half alone, antibody product sales increased by 19.4 per cent and non-antibody product sales were up 29.3 per cent. This significantly outstripped wider market growth of 3-4 per cent.

Clearly, there’s renewed momentum at Abcam, so, while a forecast PE ratio of 23 might be too much for new investors, the shares are worth buying on weakness. Hold. HR



By their nature, stories like GW Pharmaceuticals (GWP) are long-term, risky and speculative. But we’ve had faith in GW’s growth potential for some time, as well as the value of its future product pipeline – we tipped the shares in August last year and, at 520p, they are up 16 per cent since that advice.

The reason GW garners so much attention comes down to its focus on the medicinal benefits of cannabis. Even more controversial is the development of Epidiolex – GW’s cannabinoid-based drug for the treatment of childhood epilepsy. In fact, the group is gearing up to make a ‘new drug’ regulatory filing with the US Food and Drug Administration for Epidiolex in the second half of 2015. Meanwhile, sales of GW’s existing Sativex product are ticking along. The drug is approved in Europe for treating spasms in multiple sclerosis patients. But GW is more interested in its potential for treating pain in cancer patients. Additional data from third-phase clinical trials should be available in late 2015.

GW is also trialling several other cannabis-based compounds for a range of disorders, including schizophrenia, ulcerative colitis and glioma – a type of tumour that starts in the spine or brain. Buy. HR



Shares in Asos (ASC) started to decline sharply in February last year as the online-only fashion retailer suffered a string of profit warnings. And the underlying problems that led to those downgrades are still casting a shadow.

Asos is in the middle of a massive investment programme to cope with rising sales and is also attempting to penetrate the Chinese market. That’s disrupting trading and increasing costs. It’s also had to lower prices overseas to lure back customers in places such as Australia, New Zealand and continental Europe, who have started looking elsewhere to kit out their wardrobes. And although upgrades to Asos’s core UK warehouse are now complete – the new facilities should deliver operational benefits, such as lower per unit costs – this will be offset by investment in European distribution, which is less efficient. Bringing that up to scratch will cost money, and take at least 18 months.

So there is still plenty of heavy lifting – and uncertainty – ahead at Aim’s largest company. Despite all this, the shares have been creeping up in recent months, driven by better than forecast half-year results. We would be wary of reading too much into this, though, as in the near term, profit growth is likely to remain elusive and the high rating leaves little room for error – and investors nervous. Hold. JB


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Aim 100 2015 Part 1